Increased borrowing will force Government to review public spending post-2011

19 November 2008

The Government is likely to be forced to revisit public spending plans for the period beyond 2011 in response to an increase in public borrowing, according to analysis by PricewaterhouseCoopers.

In next week’s pre-Budget report, the chancellor is expected to revise downwards estimates of economic growth, and revise upwards estimates on the level of borrowing for the next two financial years from the current £43bn to £90bn.

PWC comments that this hike in the budget deficit will mean that ‘at some future point, higher taxes and/or lower-than-planned spending growth will be necessary’.

This is predicted to meet the targeted tax cuts and front-loading of spending plans which have been trailed by the Government as measures to revive the economy. PWC says budget tightening ‘will be necessary to restore the public finances to health in the medium term’.

The Conservatives withdrew support for government spending plans for up to 2010/11 and beyond, with leader David Cameron urging ministers ‘to curb the growth of spending’.

The party is undertaking a review of areas where spending could be reduced.

The Liberal Democrat Party, meanwhile, is already setting out plans to cut government spending by £20bn, including some £1bn for upgrading motorways and trunk roads.

The likely review of post-2011 indicative allocations for local transport will be met with concern by technical officers, who had urged funding stability to allow long-term planning.

The Government had told councils to expect annual funding increases for integrated transport and highway maintenance until 2018/19 of 2% a year, although it recently suggested that regional bodies should be able to revisit these figures (Surveyor, 4 September).

Brian Smith, president of the County Surveyors’ Society, said: ‘The CSS would be concerned if the certainty in funding allocations of recent years for local transport is taken away. This has allowed more effective planning and spending of resources.’

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